Comments on: The Health Care Cost Shifting Myth

By: Austin Frakt

Austin Frakt — Sun, 27 Sep 2009 16:55:25 +0000

@Brad - 90+% capacity with privately insured patients? Or is that counting Medicare and Medicaid? Suppose it is some of each. I don't know to what extent a hospital can control its payer mix. But charging a bit less to the private insurers in order to gain more market share in that sector is what I was thinking. Thanks for the heads up on the Health Beat blog.

By: Brad F

Brad F — Sun, 27 Sep 2009 15:27:46 +0000

In my neck of the woods (NYC), hospitals running 90+% capacity, no point in lowering prices for greater market share. I can see though, in certain areas lowering prices would have beneficial effects.

Brad

ps–see healthbeat blog, 9/24. your post gets a citation

By: Austin Frakt

Austin Frakt — Sat, 26 Sep 2009 23:16:13 +0000

@Brad – First I tend to fall back on the notion of market power. In a market in which the providers have substantial power relative to the insurers, the insurers are commensurately at their mercy. This is a real problem. I think those who really understand health care markets know it. But it is not politically expedient to beat up on providers now. The focus is, incorrectly, on insurers. In fact, they’re not the big source of the cost problem.

There are many sources of market failure in health care. But I don’t have any basis upon which to believe hospitals behave irrationally with respect to competition (happy for someone to cite something to the contrary). Why would a hospital not reduce its cost if it could gain market share by doing so?

Bottom line: cost shifting is a rare and small phenomenon. The only folks I’ve seen claim otherwise have a major conflict of interest. I do not. I don’t profit by this claim or the contrary one.

By: Brad F

Brad F — Sat, 26 Sep 2009 21:10:29 +0000

Austin,

On UR’s quote:

If that is true, however, then one may ask the following question: If the private plans cannot resist increased prices as a result of this particular cost shift, how then can they resists any price increases justified to them by any cost, whatever its origin? How, for example, could they resist picking up the tab for the so-called medical arms race by which hospitals compete? I find this an intriguing question and invite comments thereon.

I always wondered the same thing; not that hospitals would raise this point, but why doesnt Congress, or MCO’s?

Also, your quote:

However, if one competitor elects to reduce costs or reduce its burden of undercompensated care, it might be able to charge private insurers less then others, thereby increasing its market share. So, cost shifting may not be a stable equilibrium.

Would this hold true only in a rational market? Given the asymmetries/dysfxn in health marketplace, would this not be a less or even rare phenomena?

THanks
Brad